Wednesday, July 27, 2016

Richard Koo on Why Helicopter Money Just Won’t Work (as God is my witness I thought turkeys could fly)

From FT Alphaville:

Koo on why helicopter money just won’t work
Helicopter money won’t work in Japan, says Nomura’s Richard Koo in a note on Tuesday, because when the typical Japanese citizen finds a 10,000-yen note lying on the ground, she will turn it in at the nearest police station rather than spend it.
Put differently, a helicopter money policy can only work if the people in a country have little sense of right and wrong.
Koo, of course, is talking about the effectiveness of actual banknotes being thrown out of helicopters in the sky. It’s one of four ways he thinks helicopter money policy could be implemented — since the real challenge with helicopter money is how it would be distributed, and to whom.
The first option really is throwing bags of money out of the sky. But here be unintended social consequences. For example :
No seller would exchange products for money that fell from the sky.
Another critical omission from the argument that helicopter money will resuscitate the economy is that it focuses exclusively on the logic of buyers while ignoring the logic of sellers.
Unethical buyers may try to go shopping with money that has fallen from the sky, but there is no reason for sellers to accept such money.
Sellers are willing to take money in exchange for goods and services only because the supply of that money is strictly controlled by the central bank. If money starts falling from the sky, sellers will refuse to accept it as payment for their products.
If the authorities actually began dropping money from helicopters, shops would either close their doors or demand payment in foreign currency or gold, and the economy would quickly collapse. There is no economy so wretched as one that no longer has a national currency the people trust.
Because it plainly ignores the psychology of sellers in the market, literal helicopter money is not, in Koo’s opinion, the ultimate form of monetary accommodation. Taking it to this extreme would only lead to an economy’s collapse, not its recovery. More so, there’s no case in recorded history where an economy without a credible national currency outperformed an economy with one.

There are three other distribution options/forms of helicopter money out there — but these probably won’t be any more effective, Koo says....MORE 
From WKRP (Cincinnati):

The Thanksgiving episode "Turkeys Away"

"It's a helicopter, and it's coming this way. It's flying something behind it, I can't quite make it out, it's a large banner and it says, uh - Happy... Thaaaaanksss... giving! ... From ... W ... K ... R... P!! No parachutes yet. Can't be skydivers... I can't tell just yet what they are, but - Oh my God, Johnny, they're turkeys!! Johnny, can you get this? Oh, they're plunging to the earth right in front of our eyes!